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MUMBAI: The Tata Group has set aside the funds required to buy back NTT DoCoMo's 26.5% share in their telecom joint venture as they are unlikely to find a third investor for the Tata Teleservices stake before the end of June at the price they are looking for, two people familiar with the matter said.

DoCoMo's move last month to exit the loss-making Tata Tele means the Indian conglomerate has to either buy the stake or find a buyer for it under their 2009 joint venture agreement. According to the pact, if they can't find a buyer by June end, Tata Group has to pay a market-linked price, or at least Rs 7,250 crore, which is half the investment the Japanese telecom major had made in the joint venture.

The development comes despite the Tata Group itself exploring ways to exit telecom. According to sources, it had been in talks with the nation's No. 2 carrier, Vodafone India, for a lock, stock and barrel sale of the unit that is currently at No. 7, based on subscriber numbers among 12 operators. A person familiar with the matter said the DoCoMo exit could have been part of a broader strategy to enable Vodafone negotiate with just one seller, instead of two. Tata Tele and Vodafone didn't respond to emails seeking comment.

But the valuation is likely to become a stumbling block in any deal negotiations over Tata Tele, mainly because of the huge debt it has run up and which made its net worth negative. Any buyer would also be worried about new telecom merger and acquisition rules, which say an acquirer must pay a market-linked price to the government for the acquired bandwidth if the target company had bought it without bidding in an auction.

"With this debt level and inadequate profit generation to service it, the company's equity value to a third party is very little," a banker exploring a deal with Tata Tele told ET.

Top executives at two potential acquirers of the company said they were interested but did not want to take on the Rs 28,000 crore or so of Tata Tele's debt. For a deal to take place, they said, lenders need to take a 'haircut' by writing off part of their exposure to Tata Tele, or the Tata Group has to assume some of that. The market-linked spectrum payment rule is a further impediment, both said. "Why should I make a deal in which I can't be sure when, if at all, I will make money," one of them asked.

Tata Tele's CDMA and second-generation airwaves were both allotted without auctions. The price of spectrum allotted through auctions had gone up sharply compared with those allocated directly by the government. Unlike in 2008, when valuations were dependent on average monthly revenue per user and subscriber base, calculations today depend on profitability, cash flow, and future liabilities like licence renewals.

Keeping that in mind, three analysts estimated Tata Teleservices' enterprise value between Rs 29,700 crore and Rs 32,200 crore. After taking out debt, its value based on their calculations stands between Rs 1,700 crore and Rs 4,200 crore.

The Tata Group isn't expected to sell the business at that price, the two people said. That means, the group may hold the stake after buying it from DoCoMo until it gets a more acceptable price. Tata Tele's story reflects that of most of the weaker operators which are struggling to survive in a market where the three leaders — Bharti Airtel, Vodafone India and Idea Cellular — among them hold more than half the subscriber market share and over 70% of industry revenue.

Some of the laggards are bleeding and a few have already started to co-operate with each other, an example being Tata Tele, Aircel and Reliance Communications striking inter-circle roaming deals for 3G services and intra circle for 2G. But the big-ticket merger and acquisition deals will remain absent in the market till sellers, bankers and government step in, say industry experts.

"The current policy puts the onus of a return on investment on the acquirer (which is not desirable). The valuation of the assets is lower than the debt on the books," said Himanshu Kapania, CEO of Idea in a recent interview to ET. Idea has been touted as a potential buyer, given its improved and growing financial strength. An investment banker, involved in telecom negotiations, said the focus in the industry has returned to profit over scale.